Qualcomm faces anticompetitive practice charges

The US Federal Trade Commission (FTC) has charged Qualcomm with using “anticompetitive tactics” to maintain its monopoly on the supply of a key component for smartphone and tablet processors.

The FTC claimed that the California-based chip maker has increased costs for the consumer and crippled competition in the process.

The technology in question is a baseband processor, a device used in mobile products to manage cellular communications, and involves patents that are declared “essential to industry standards”.

The FTC claimed that by creating an uneven playing field, companies have been dissuaded from launching competing products and has stifled technological progress.

One company Qualcomm allegedly forced into an exclusive deal was Apple. The FTC alleged that the tech giant was kept from sourcing baseband processors from Qualcomm’s competitors in exchange for lower royalties.

In response to the charge, Qualcomm questioned the law itself, stating that it is “based on a flawed legal theory, a lack of economic support and significant misconceptions about the mobile technology industry”.

It also claimed that the FTC had some of its facts wrong, stating that it “has never withheld or threatened to withhold chip supply in order to obtain agreement to unfair or unreasonable licensing terms”.

The company was also quick to point out that the suit was rushed in “on the eve of chairwoman Ramirez’s departure and the transition to a new [presidential] administration”.

Qualcomm concluded: “We look forward to defending our business in federal court, where we are confident we will prevail on the merits.”

The Commission vote to file the complaint against Qualcomm was 2-1. In a statement of dissent from Commissioner Maureen Ohlhausen, she said: “I face an extraordinary situation: an enforcement action based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine US intellectual property rights in Asia and worldwide. These extreme circumstances compel me to voice my objections.”

She continued: “The core theory of the complaint is that Qualcomm uses its alleged chip set monopoly to force its customers – smartphone manufacturers (OEMs) – to pay unreasonably high royalties to license FRAND-encumbered patents that are essential to practicing CDMA and LTE cellular-communications standards. Because OEMs have to pay those royalties regardless of which chip set manufacturers they purchase from, the alleged effect is to squeeze the margins of Qualcomm’s competitors in chip sets. Qualcomm allegedly implements that strategy through its “no licence – no chips” policy and refusal to license its chip set-maker rivals. The fundamental element of this theory is a royalty overcharge. If Qualcomm charges reasonable royalties for its patents, then there is no anticompetitive “tax”— the complaint’s nomenclature for a price squeeze—but only the pro-competitive monetisation of legitimate patent rights. Importantly, there is no suggestion that Qualcomm charges higher royalties to OEMs that buy non-Qualcomm chip sets.”

Commissioner Ohlhausen concluded there was “no robust evidence” of exclusion or anticompetitve effects.